facebookWhy is it ok to borrow money to invest in real estate but always advise against borrowing money to buy stocks? - Seedly

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Anonymous

18 Apr 2019

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SeedlyAMA

Why is it ok to borrow money to invest in real estate but always advise against borrowing money to buy stocks?

AMA The Fifth Person

Discussion (3)

What are your thoughts?

Hi there! Mortgages tend to have lower interest rates than margin rates and generally speaking, real estate prices have lower volatility than stocks. Additionally, real estate may be non-recourse, meaning that if the property fails, the bank can only go after the mortgage property and not your personal property. You can think of it this way, the bank cannot take away your house simply because the house dropped in value but on the flip side, the broker is able to take away your stock when the value drops.

Victor Chng

Victor Chng

20 Feb 2019

Level 7Β·Co-Founder at Fifth Person Pte Ltd

Hi,

Leverage work well on property because property price are not volatile as stocks price. It is rare to see property price decrease more than 20% on a single day but it is a common thing in stocks where the price can tank by 20% or more on a single which lead to margin call.

Hence, only leverage on asset that are predictable (Monthly rental income) and asset price that don;t fluctuate greatly (Does not drop more than 20% on a single day).

Kenneth Lou

Kenneth Lou

19 Feb 2019

Level 14Β·Co-founder at Seedly

Real estate is an asset and thus can be used as a collateral which can be collaterised when taking a...

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